Free Money is Addictive

XXX Homestead Road $162/sqft. Asking $364,900.

This home was foreclosured upon in July. I wouldn't call it a bargain at its price. This is however what its previous owner paid for it when she bought it in 2002. When it was bought in 1997, it sold for $130K. It nearly tripled in price in 5 years. (Just because Case-Shiller marks 2000 as it's reference "100" point doesn't mean the bubble started in 2000.)

Todays owner debtor suffered from a terrible addiction to free money. She returned to the free money tap every year for another $20K:

05/31/2002 -- purchased for $365K
Corporate Lenders Investment Group -- First Mortgage for $292,000
Southland Associates w/ Central Carolina Bank -- HELOC for $36,500
$73K downpayment, but only $36.5K were frozen in the house.
Effective percentage down payment: 10%

(Barely one year!)

06/03/2003
Southland Associates w/ Central Carolina Bank -- HELOC extended to $66,000

(Almost a full year, almost!)

06/02/2004
Southland Associates w/ Central Carolina Bank -- HELOC extended to $85K

(She only held out half a year)

12/01/2004
Corporate Investors Mortgage Group -- Refinanced the first mortgage to $310K

(w00t, she made it for longer than a year!. "Two packs a day, but I'm cutting back.")

12/28/2005
Sun Trust HELOC for $100K taking over the $85K debt from Southland Associates w/ Central Carolina Bank.

By the start of 2006, she had $410K worth of debt and no equity. The owner held out for three years before defaulting somewhere around February, at which point she lived rent free until her house was sold at auction. The Corporate Investor's Mortgage Group seems to have been a shell company for a single investor. I'm not sure. This investor bought the property at auction for $321K. He must think that someone would be willing to pay $365K for this house again.

It's unclear to me what happens to Sun Trust's $100K. In California, only the first "purchase money" loan is "no-recourse" following a foreclosure. Other loans, like HELOCs are not. If this were California, then Sun Trust would retain the legal right to sue our addict for the $100K she owes.

Our addict has found rock bottom having been evicted from her home and she still has $100K hanging over her head.